Employment Law for Ministries

  
 

What to Do about the New DOL Minimum Wage and Overtime Rule

By now, you know that the Department of Labor is changing the test for determining whether a worker is exempt from federal minimum wage and overtime pay requirements. As has long been the case, an employee must be paid on a salary basis to qualify for a so-called white-collar exemption. The significant change being made (although there are other modifications) is to the minimum salary level. To be exempt, salaried employees must earn at least $684 per week or $35,568 annually (up from $455 per week or $23,660 annually under the former rule).

The new salary level requirement takes effect January 1, 2020.

Initial Considerations for Employers

The obvious task for employers is to determine whether any salaried employees currently classified as exempt earn less than $684 weekly/$35,568 annually. If so, employers may either increase their salary to meet the minimum or classify them as non-exempt in 2020. Payroll budget is likely to be a major consideration in that choice, although employers might also consider factors such as whether:

  • the worker is likely, due to anticipated annual raises, to earn the minimum salary within the next couple of years; in that case it would make sense to bump the worker’s pay now, with perhaps lower annual raises in the near term;
  • the worker’s job might better be filled by a part-time position or even two part-time positions; in that case, overall compensation cost to the employer might decrease and overtime pay would be rare if not eliminated; and
  • the worker prefers to be treated as a non-exempt employee with the opportunity to earn occasional overtime pay; in that case, the employee’s annual wages might still be less than the exemption minimums. 

Employers also need to consider two threshold issues. First, is the employee even covered by the minimum wage/overtime requirements of the Fair Labor Standards Act (FLSA)?  Most workers are covered. Unlike some federal laws, the FLSA does not include an exception for religious organizations, but some employees (e.g., ministers) might not be covered. (For more information on the FLSA’s application to ministries, see our April 2019 newsletter.) Second, check state and local wage laws, which may set different exemption requirements, including higher salary levels. California and New York are among the states that have set their own salary levels. Other states, such as Michigan, are considering salary levels that exceed the FLSA standard. State and local laws prevail if they are more generous to employees than federal law.

To Do List

It would be prudent while considering the impact of the revised DOL rule to take a broader look at FLSA compliance. There are many, many ways in which employers can run afoul of minimum wage and overtime rules. A compliance check, while not a substitute for an audit, can reveal potential wage liabilities. The following are among the most important issues to consider:

1.     Are your exempt workers truly exempt?

It will not be difficult to determine if workers are paid at least the minimum salary required for exempt status. But the white-collar exemptions have additional requirements. To be exempt, workers’ primary duties must qualify them as administrative, executive, or professional workers. Also consider whether they are paid on a “salary basis”—i.e., a fixed, regular payment that does not vary with hours worked. Workers who do not meet the duties, salary basis, and salary level tests are not exempt under the white-collar exemptions. An employer that mistakenly treats a non-exempt employee as exempt risks having to pay uncompensated overtime pay and other substantial damages later on.

2.     Are Non-Employees Correctly Classified as Such?

Contractors and volunteers are not “employees” covered by the FLSA. Well-established tests distinguish among these categories under federal law, although the tests are not always easy to apply. (State law tests can and do differ. Earlier this year, for example, California altered the legal test used to distinguish contractors from employees.) If individuals are providing services to your organization, they should be classified as employees unless they meet the applicable tests. The tests are very fact-based, so factual changes can require a new classification.

3.     Are the “hours worked” computed correctly?

The FLSA requires employees be paid not only when they are “required” to work but also when they are “permitted” or “allowed” to do so. Whether time is compensable is subject to many considerations, but employers face real litigation and liability risks if they incorrectly deem entire activities as “unpaid.” For example, as a result of a DOL investigation, a healthcare facility in North Carolina last month paid nearly $100,000 in backpay and other damages to workers who were not paid for time spent driving between patients’ homes. The DOL publicizes new FLSA violations on practically a daily basis, including for miscalculating hours worked. Accurate tracking of time worked is also, of course, critical to assuring FLSA compliance and meeting record-keeping requirements.

4.     Is pay appropriately based on the “workweek”?

The workweek is an important concept under the FLSA. It is, for example, how an employer determines if overtime pay is required. The workweek also determines whether work hour adjustments may be made without leading to overtime liability. For example, some employers have a nine-day work schedule every two weeks, with the second Friday off. In that case, the workweek adopted by the employer needs to end in the middle of the workday on Friday, so that each workweek consists of four nine-hour days and one four-hour day—i.e., 40 hours. If an employee happens to take off, say, the Wednesday of the first work week instead of the second Friday, he or she will have worked 31 hours in the first week, and 49 hours in the second week—and would be owed overtime pay for nine hours. 

Wage and hour law can be extraordinarily complicated. To minimize the risk of wage liability, ministry employers should remain vigilant about compliance. If you have any questions about the above information or other wage and hour questions, feel free to contact us.

This summary is provided as an informational tool. It is not intended to be and should not be considered legal advice, and receipt of this information does not establish an attorney-client relationship.